The Weakening Tentacles of SWIFT

The deployment of Russia's SWIFT equivalent is proceeding. The Bank of Russia was recently authorized to connect both banks and legal persons to the SPFS (Financial Information Transmission Service). The first to be interested in the new systems were Evraz, Rostekh, and Rolf.

Does it mean that cutting Russia off from SWIFT, should our Western friends and partners take this unfriendly step, will be painless?

Not entirely. Being cut off from SWIFT would be something of a headache to our enterprises. Sanctions of this kind would be especially inconvenient to the importers: they'd have to find roundabout ways of paying for the goods they are importing whereas right now it takes two clicks of a mouse to transfer the money.

But it wouldn't be lethal. What is more, the more advanced our own SWIFT alternative is, the less likely we are to be cut off from it.

Here's why.

Cutting Russia off from SWIFT would be costly for the West. The biggest loser will be SWIFT itself, as its reputation will decline and many countries will start thinking about establishing an alternative to the monopoly.

Americans will also suffer. First of all, if Russia is cut off from SWIFT, they'll lose information about money that flows through SWIFT. This is very important intelligence information--it allows them to, for example, blackmail our corrupt officials who have accounts in the West.

Naturally, some secrets are immune even to SWIFT transfer analysis: US intelligence services recently admitted they have been tracking Putin for 20 years, and they still can't find his billions.

Naturally, the problem here is not the lack of US monitoring of financial streams but treason of some sort within the intelligence community. No way our non-systemic opposition was lying to us when it was kindly assuring us that Putin has stashed tens of billions of dollars abroad.

Incidentally, losing the ability to monitor money flows into and out of Russia is only part of the problem. If the US succeeds in bending SWIFT to their will, they'll have to deal with the sharply negative attitudes of European business community, since businessmen never like politicians barging into their affairs in so unceremonious a fashion.

Every major corporation would start wondering--"are we next? What if Washington forces me to sacrifice my interests and my reputation?"

Therefore Washington would assess costs and benefits before pressuring SWIFT. If depriving Russia of SWIFT access would plunge its finances into chaos, then Uncle Sam might be tempted to play this card. But if the result is only a minor headache for a few Russian companies, that particular button will never be pushed.

One has to keep in mind that Western sanctions remind one of shooting at a bear with birdshot. It doesn't hurt the bear's thick skin, and with every shot the chances of tempting the bear into the trap, like in 1991, decrease.

Now let's look at the speed with which the new system is being deployed.

It was clear that SWIFT can be used as a weapon against Russia as early as 2012, when the US cut off Iran from SWIFT.

In late 2013, when Euromaidan was only beginning, there were widespread expectations that any deterioration in relations will lead to a sanctions assault by the US. These expectations became reality after Crimea's reunification with the US.

A year later, in late 2014, the Central Bank created the SPFS, our SWIFT equivalent.

And, finally, during its Spring session the State Duma passed the "On the Central Bank" law which gave the Bank of Russia the authority to connect Russian firms to SPFS.

As you can see, the decisive action to create a SWIFT alternative was undertaken only when US sanctions were already pounding on our door with their fists. Moreover, it's been more than a year since the project was launched, and the system is still being deployed.

Why is the process so slow?

Because we are talking about grand politics and about the economy of a huge country. It's speed that's appropriate to our dimensions. When we add cooperation with other countries, then the time required becomes even greater. Look at the tale of de-dollarization--the actual decisions to replace dollars with national currencies were made a long time ago, but the non-dollar institutions are only now approaching their full potential.